Massive rocket fire
against Sderot and the Western Negev commenced in January 2001, and has caused significant damage to homes and property,
while injuring 433 Israeli residents and traumatizing thousands of adults and children.

22 people have been killed in the Western Negev
region by the rocket attacks, including 9 residents of Sderot, three of whom were children.

Qassam rocket fire poses a major threat to Israel
from Palestinian terrorist organizations who are based in Gaza. As of January 2008, over 8,000 rockets have been
launched at Sderot and the Western Negev.

The Qassam Rocket

The Qassam-class, or Kassam, short-range missile was developed by the
Hamas terrorist organization with the aid of Iran, Hizballah, and the Palestinian Authority, while Egypt has played. a
role in its facilitation of arms and munitions imports.

The Qassam, which can reach up to 20 km, is fueled by a mixture of
potassium nitrate and sugar (solid propellant). Qassam missiles are manufactured and deployed primarily in the Gaza
Strip; however, the IDF has seized Qassam missiles in Palestinian areas of the West Bank.

Palestinian terror groups prefer to use Qassam rockets as means of
terrorizing Israelis because these rockets are easy to manufacture, their components are cheap and readily available,
and it is simple to transport and operate them. Hamas and other terrorist organizations in the Gaza Strip use elementary
technology to produce large quantities of rockets, which give them the ability to attack the Israeli populace in the
western Negev at any time, with the IDF unable to effectively respond. Because the rockets are small, Israeli officials
have had difficulty shutting down its production. The IDF notes that 97% of the Qassam rockets are launched from
civilian areas in Gaza, which limits the IDF response to the terrorists as civilians surround rocket launching pads.

Different models of Qassam rockets have been developed and launched in
the past seven years.

Between 2001 and November 2007, more than 2,500 mortar shells were
fired. Their short range made them effective before the disengagement, especially when they were aimed at the IDF forces
which operated in the Gaza Strip and at the Israeli settlements there. In the absence of Israeli targets after the
disengagement there was a sharp decrease in the number of rockets fired.

Since April 2007 the terrorist organizations have begun to make
greater use of mortar shells, especially Hamas, which does not directly participate in rocket fire. In recent months the
fire has been aimed at IDF forces operating in the Gaza Strip and along the security fence, at the crossings (especially
Kerem Shalom) and at the Israeli communities close to the security fence, such as Netiv Ha'asara, Kibbutz Kerem Shalom
and Kibbutz Nahal Oz .

Katuysha Rockets

Although more rare, Katuysha rockets are occasionally fired from
Gaza.Because the Katuysha rocket is much more advanced both in distance
and design,Katuyshas have reached heavily populated
Israeli cities like Ashkelon. Three Iranian-produced, 122mm Grad Katuysha rockets launched from Gaza have landed in both
industrial and populated areas of Ashkelon in January 2008.

Palestinian Terror Groups in Gaza

Hamas:
Produces the Qassam rocket (models 1, 2, 3), and is named after the terrorist organization's armed wing. Since Hamas's
takeover of Gaza in mid-June 2007 to December 2007, there have been 475 missiles and 635 mortar shells launched at
Israeli cities. Hamas rockets are identified by their red and green coloring.

Palestinian
Islamic Jihad:Islamic Jihad is affiliated with the Egyptian Islamic Jihad
and is believed to be funded by Hezbollah, Syria and Iran. The armed wing of Islamic Jihad, the Al-Quds brigade fires
Al-Quds rockets at Sderot and the Western Negev on a frequent basis. The Al-Quds rockets are identified by their red and
yellow coloring.

Al-Aqsa
Martyr Brigades:An armed military wing of Palestinian President Mahmoud Abbas's Fatah
party, the Al-Aqsa Martyrs Brigade frequently carries out rocket launches against Israel. In February 2008, the
terrorist faction carried out a bombing attack in Dimona, in southern Israel. The Al-Aqsa rockets are identified by their yellow coloring
with Arabic writing. The U.S. State department identifies Al-Aqsa Martyr Brigades as a terrorist organization.

Impact of Rocket Fire on Israeli
Cities: Sderot and the Western Negev

The Qassam rocket fire has had a terrible impact on the Western Negev
region, especially on the city of Sderot. The city's population once numbered 24, 000 people. Today the population has
fallen to an estimated 19,500, as over 4,000 residents have left. The following areas in Sderot have been considerably
impacted by the seven years of rocket fire.

SECURITY: Security in and around Sderot has been greatly affected. Because
Sderot lies 2.5 kilometers (about one mile) away from the Western Negev, the city bears most of the brunt from the
rocket hits. Since Israel's disengagement from the Gaza Strip in August
2005, Arab terrorists have increased the attacks, firing over 2500 Qassam rockets.
Sderot and the western Negev today experiences on average three Qassam rocket attacks
per day. During the last two weeks in the month of May 2007 during the supposed ceasefire, close to 300
Qassam rockets were fired on the town of Sderot.

The Israeli government has installed a radar systemor "red alert alarm" in an attempt to alert Israelis to
possible shellings, though it does not sound on cold or rainy days when the radar cannot detect the rocket launches. In
addition, the siren system cannot detect the launching of mortar shells. Once the rocket is launched from Gaza and the
siren sounds, Sderot residents have 15 seconds to escape to a bomb shelter. In the year 2007 alone, 2000 Qassams were
launched from Gaza to Sderot and the western Negev according to an IDF spokesman.

MENTAL HEALTH: The mental health of Sderot residents has severely deteriorated over
the past seven years as each rocket attack results in psychological turmoil. In the past year and a half more than 1,600
instances of stress were reported. Approximately 70% of Sderot residents suffer from
signs of post traumatic stress disorder which includeextreme
stress and anxiety. According to a recent Natal report, between 70% to 94% of Sderot
children show symptoms of PTSD. The Natal study found 28 percent of adults and 30 percent of children in
Sderot actually have post-traumatic stress disorder (PTSD).

Approximately 3000 patient files have been opened in the Sderot
Mental Health Center due to the rocket fire environment. In the year 2007 alone,
1,117 trauma victim files were opened, up significantly from 2006. Anxiety symptoms among children often
include sleeping difficulties, nightmares, sweating, development regressions, wetting beds, and fear of the outside.
There are only 4 psychologists on call in Sderot. Therefore, many Sderot trauma victims do not receive the proper, if
any, psychological therapy and care.

EDUCATION:
The education in Sderot has been
severely affected by the rocket attacks. Only 4 schools in Sderot offer complete
buffer protection for students from rocket attacks. About 60% of the schools in Sderot do not have complete
protection or buffers for their classrooms . In the past year, 1,100 kids have switched to schools outside of Sderot.
Children in Sderot suffer from severe hyperactivity and have difficulty focusing in class. Grades on exams and tests
have dropped, while aggressive behavior among students in class has increased. Only 56.5% of 12th grade
students in Sderot received their matriculation certificates in 2001, as half the students failed due to the current
state of rocket fire.

ECONOMY: Real estate and small businesses have suffered most from the rocket
fire. According to Yakov Levy, a Sderot realtor, prices of homes have fallen by 50%. Housing prices were nearly double
in 2000 before the rocket fire began. Between 20 to 30 percent of businesses in Sderot and surrounding areas have shut
down since the rocket terror. Sales at stores in general have dropped by nearly 50 percent. During the intense rocket
fire of May 2007, 350 small businesses were forced to close down. In January 2008, Hollandia, a major international
mattress factory, employing close to 100 local residents in and around Sderot, has been forced to shut the factory in
Sderot and relocate to central Israel because of the rocket fire.

The state of Israel has ruled that Sderot is not a war-zone area and
therefore businesses and buildings damaged by rockets do not receive immediate payments for damages, but retroactive
payments only.

The Increasing Threat

Approximately 45, 000 residents in the Western Negev, which include
Sderot and other numerous kibbutzim and moshavim, have been living under daily rocket terror. The number of Israelis who will live under rocket threat has increased to 250,000
according to Internal Security Minister, Avi Dichter in December 2007. Heavily populated cities like Ashkelon, Netivot,
Ofakim and the inland city of Kiryat Gat will all be subject to rocket attack, once Palestinian terror groups begin
launching long-range Katuysha rockets.